Will Brooks

Turns Out… My Fund LP Portfolio Beat My Direct Portfolio 😅 Maybe I’m not a bad investor — maybe FoFs aren’t the fallacy we think they are. I’ve been reading several great pieces lately and reflecting on a touchy subject: venture funds of funds (FoFs). Hamilton Lane has hammered this home for years: venture isn’t really an “asset class” — it’s an access class 🚪. • 📊 VC has the widest dispersion in private markets. • ⏳ That dispersion hasn’t narrowed, even as VC scaled — the power law still rules. • 📉 Drawdowns cut deeper here than anywhere else. Translation: pick the right managers and you look like a genius; miss them and you look… well, like me on some of my direct deals 🙃. That’s why the Pattern Ventures benchmarking caught my eye: across 2005–2019 vintages, FoFs (yes, even with “double fees”) actually: ✨ Beat direct VC in the median quartile in 14/15 vintages (+0.68x TVPI). ✨ Outperformed the bottom quartile every single time (+0.89x) — and never fell below 1x. ✨ Smoothed returns, with dispersion nearly halved (0.58x vs. 1.21x). Confession time: even in my own portfolio, my LP fund investments have outperformed my direct ones. Not sure if that makes me a bad direct investor 😅 … or just a better FoF LP. Either way, it taught me something about where my real portfolio chops lie. In hedge funds, double fees kill. In venture, access math beats fee math. So the real question for LPs isn’t: “Do we avoid FoFs?” It’s: Do we build selection capability — or buy it? Because in venture, average is the most dangerous place to hide.🚫 🔖 David Dug Skylar Anurag John Samir #VentureCapital #PrivateMarkets #FundofFunds #LPInsights #VCInvesting #PowerLaw #Dispersion #InstitutionalInvesting Asilica | Redshift Capital | Allocate

118

9 Comments

Firstly, this isn't a post about Europe vs US. They're different beasts at different stages of development… However, as a European VC, it's critical to be connected to the US VC market. If you are, on average, you'll get bigger markups for your portfolio by taking advantage of the UK/US arbitrage among other things. Two examples of this are Lawhive and StackOne from our portfolio. Both have founders who've moved to the US and both have raised from GV (Google Ventures) with deep US ties of course. Same with companies like Mimica (Khosla Ventures), Carwow (Bessemer Venture Partners, Accel) and many more. You need to be able to pick the phone up to tier 1 US VCs and get them to meet your portfolio. So when Adam Shuaib, PhD, Millan Suri and I went to SF a few weeks back, we tried to cover as much ground as we could, meeting about 40 of the tier 1 US funds like Founders Fund, Greenoaks, Sequoia Capital, Thrive Capital, Andreessen Horowitz…. It takes time to build this network but the rewards are great. As you can see, we also went surfing.

74

2 Comments

🚨 ATTENTION BUSINESS BUYERS 🚨 At Shareholder Ventures, we review dozens of investment opportunities every week 📊, and a troubling pattern is starting to emerge: A buyer brings us a business that shows a big dip in SDE two years ago (sometimes even going negative 📉), followed by a sharp rebound and rapid growth over the last 24 months 📈. Now the seller wants to price the deal at a 4–5X multiple on TTM earnings… and refuses to include any forgivable seller note 🚫. Here’s the problem: once you layer in debt service, if you experience the same year the seller had two years ago, you’re likely going bankrupt 💥. It may be a great turnaround story for the seller, but for a buyer taking on debt this is a RUN, DON'T WALK AWAY situation 🏃‍♂️. The seller needs to have real skin in the game given the volatility in the financials, which usually means a meaningful seller note with a forgiveness clause if revenue drops. Without that, it’s hard for any buyer or investor to get comfortable with the story behind the numbers. Remember: this is your financial future. Don’t buy a shaky business without the right deal structure just because the market feels competitive ⚠️. More often than not, that same deal will still be on the market six months from now, and the seller may be far more open to your deal structure then.

85

23 Comments